1099-K

[jaimnich]

I was wondering if we need to file the 1099-K form along with the 1040 form for taxes. I heard that this form is only informational, but I also heard that IRS also receives a copy of this record. I was wondering what to do since PayPal issued me a 1099-K form. I have received some money that was incorrectly marked as “goods and services” and PayPal refuses to change it. I shouldn’t be paying any taxes for it but if I can’t get the document changed, where should I report that money? Should it be under “other income” on the 1040 form and in that case do I also need to send the 1099-K file with it to IRS? For reference, I don’t have any other 1099 documents (like 1099-MISC) other than 1099-K.

[Bsch4477]

You can exclude income that should not be taxed on the top of Schedule 1. Enter another 1099K with a negative amount. 

[jaimnich]

I was wondering would excluding that income/money trigger an audit? The money is around 20k so if PayPal doesn’t change transaction status, I am not sure how else I can explain the problem legally. Would writing a letter be enough? If my 1099-K is already being sent to IRS, can I still send another one with that negative amount you are talking about?

[Bsch4477]

The IRS is well aware of the 1099K issue. Any letter accompanying your return wouldn’t be read. Just have good records in the unlikely event that the IRS has a question. 

[jaimnich]

Thanks for your answer. Just to clarify, are you suggesting that I state “1099-k received in error” on Schedule 1 or were you talking about something else? Also, how unlikely is it for IRS to question this 1099-k error that is around 20k? I am asking this because if my letter wouldn’t be read and I can’t change the form, I am not sure how else I can explain the situation. I don’t want to pay taxes on something that isn’t taxable income but I am also worried about getting audited and receiving penalties later on if they won’t read or accept my explanation. 

[Bsch4477]

Go to income and choose 1099-K. Answer yes that the income includes non taxable income. Choose personal item sales or other. Input total amount for Box 1a. Click Amount too high. Enter the amount you want excluded, all of it if that is the case.  You will see the amount excluded automatically on Sch 1 if you can see that form. The IRS designed that form for the first time this year to address this issue. Don’t worry about an audit as long as you can document the non taxable reason for the income exclusion. Millions of taxpayers are dealing with this.